A Project Has an Initial Cost of $94,000 for Equipment

question 408

Multiple Choice

A project has an initial cost of $94,000 for equipment, which will be depreciated straight-line to zero over the five-year life of the project. There is no salvage value on the equipment. No working
Capital is required. Sales are estimated at 6,000 units at a selling price of $31.40 per unit. Variable
Costs are $22.80 and fixed costs are $41,600. The required rate of return is 14% and the marginal
Tax rate is 35%. If the sales quantity increases by 100 units, the net present value will increase by:

• A) $667
• B) $897
• C) $1,364.
• D) $1,919.
• E) $2,952

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Definitions:

Supplies Expense

Costs incurred from the purchase of supplies that are used within the operation of a business.

Credit

An accounting entry that decreases assets or increases liabilities and equity on the company's balance sheet, or in the context of banking, the provision of funds or resources to a recipient.

Prepaid Expenses

Costs paid in advance for goods or services that will be used or consumed over time, recorded as assets on the balance sheet.

Accrued Expenses

Expenses that have been incurred but not yet paid or recorded at the end of a reporting period.